Thinner profile if you're into ultra-minimalism. Easier to brush off because no moving keys with spaces in between (but, I think the material on the Touch keys are the same "soft touch" cloth-like plastic, which means it's not smooth and you can't actually properly wipe the keys off). Cheaper. Pretty cool as forward-thinking tech and the only accurate keyboard of its type, at least according to other reviews.
Traditional moving keys so you can actually feel a press register. Smooth plastic keys so you can wipe off nasty fingerprints (at least I do on a regular basis). 2nd gen includes lots of color options.
Ultimately the most important factor is flat versus moving keys, though many including touch-typists say the Touch 2 is much better than Touch 1 for accuracy. If you can get to an MS store, try both out.
I had a touch with my original RT and while it was good, I'd probably give it a 70-80% accuracy rating for my self and I could never get used to it really, but I know others who could use it perfectly. So with the SP2 I went with the type 2 and it's definitely working much better for me! As the pro is already thicker I had no problems with having an extra few mm with the cover. I would definitely recommend having a tryout before buying if you can though!
When I got the 1st Gen RT, I opted for the Type Cover. Why? Because I know that I was going to be typing a lot and I wanted the best possible option, which is what the Type cover offered. The only place that I have used the Touch cover is in stores and the little time that I have had to spend with it suggested to me that while the technology - or what the MS folks have done with it - is amazing, it requires a bit of effort, which involves time, which I did not want to spend given that an easier option did (and does exist). Having said that, there was a brief period of time when I was seriously considering the Touch cover but only to use as a cover and when folded back. But once I gained a bit of confidence in the Type cover, I quickly gave up the idea.
Recently, I bought the Type Cover 2. I did this because (1) of the backlighting and (2) because of the colour (I got the purple one) and (3) because I read that the MS design people had made some changes in terms of key travel and the sound level. I have not been disappointed.
And, having just bought the Surface 2, I have come to appreciate the Type cover 2 even more as I can now use some of the added gestures etc.
This is true. Though I did have a chance to play around for a bit with the Touch Cover 2 in the shop today. From what I remember of the Touch Cover 1, yes, indeed it seemed better. But in my situation, the Type Cover 2 is the better option.